Jeff Immelt’s stepping down as head of GE after 16 years was the odds-on favorite to be the big business story of the week until of course the Amazon/Whole Foods acquisition sucked all the oxygen out of the building.
Any lessons in here for Law Land? Bear with me, because I think there are a few.
GE and Jack Welch’s Poisonous Seed
The redoubtable James Stewart of The New York Times (Pulitzer Prize winner, author of 11 books including a couple of classics on BigLaw, Harvard Law grad and former Cravath associate), wrote in his weekly “Common Sense” column about, ahem, the re-examination of the Jack Welch legacy, lauded by Fortune in 1999 as nothing short of the best manager of the 20th Century.
Actually it turns out that Welch was the quintessential micro-manager of quarterly earnings during his GE tenure, miraculously beating the Street’s “whisper number” by one or two pennies quarter after quarter, year in and year out. How did he do this? Largely by expanding and contracting the flexible earnings accordion provided by GE Capital, always good for throwing off or taking in the odd few pennies or nickel per share. He could do this because GE in the Welch years was one of the largest and certainly the highest-profile conglomerate in the US economy. That model is now officially interred.
But hardly anyone considers Mr. Welch, now 81, a management role model anymore, and the conglomerate model he championed at G.E. — that with strict discipline, you could successfully manage any business as long as your market share was first or second — has been thoroughly discredited.
Immelt gets credit for dismantling much of the GE empire, shedding NBC Universal and GE Capital itself, but blame for not doing it fast enough. Indeed, when the 2008 financial crisis hit, it turned out that GE Capital had no comparative advantage in financial services; if anything, their risk controls were even worse than the lamentable industry standards.
Still, no one seems to dispute that streamlining to more of a core suite of businesses (jet engines, power turbines, locomotives, medical/healthcare) was the right thing to do. “Specialization is something that provides real value,” according to Bruce Greenwald, professor of finance at Columbia. Indeed, the conglomerate model is so thoroughly discredited that there’s a well-recognized “conglomerate discount” applied by the market.
Lessons for Law Land?